[miningmx.com] — IN January, 2001, when the palladium price burst through $1,000/oz, there was allegedly talk in the corridors of Gold Fields that its newly discovered platinum group metal resource, which carries the misnomer “Arctic Platinum’, might be worth $1bn. Four years later, Gold Fields has rescued the predominantly palladium project from the filing cabinet after agreeing to sell control to North American Palladium, a Canadian firm keen to resuscitate its own declining fortunes.
A dramatic correction in the palladium price since 2001, a lack of refining capacity, and lower than expected grades in the Finland-based deposit effectively torpedoed Gold Fields’ plans to diversify. But many of the same conditions have worked to undo North American Palladium which is struggling with poor market prices and declining assets.
As such, the proposal that the two companies breathe new life into Arctic is snappy piece of entrepreneurship.
The terms of the agreement is for Gold Fields to sell 60% of Arctic Platinum to North American Palladium if the Canadian firm spends $12.5m in a rescoping and feasibility study. The aim of the study is to produce a smaller. but higher grade project from the original Arctic project.
Gold Fields international director, John Munro, says Gold Fields was shooting at a 400,000 to 450,000 oz/year palladium-platinum mine. North American Palladium’s project would be much smaller, however, with a target resource of five million ounce resource yielding not less than 3g/t. This compares to a 2g/t average grade that had been identified by Gold Fields when it was assessing its much larger project.
“What we’ve done is to keep the Arctic Platinum project in the game with the possibility of participating again at a later stage,’ said Munro.
For the Canadian firm, it may well benefit hugely from the project if it has called the palladium price well. One hope is that Russian sales of palladium, from inventories the size of which remain unknown, will slow amid poor market prices. As a result, North American Palladium is bullish about market prices whereas Gold Fields is less so. Perhaps the current $195 to $210/oz palladium price represents its lower limits.
For its part, Gold Fields may recover half of the $90m that has been sunk into Arctic so far, including buying the stake originally owned by Outokumpu. This is because North American Palladium will pay Gold Fields in $45m worth of its shares, equal to about 16% to 17% of North American Palladium’s share capital.
If the Arctic Platinum project can be made to work under North American Palladium’s more experienced hand, Gold Fields stands to benefit from a share price appreciation. Gold Fields is not sure whether its partner will succeed, but it has the option to claw back 10% of the project by reducing its stake in the Canadians by about a fifth.
The rescoping and feasibility studies will begin in the first quarter of 2006 and will take about 30 months to complete, the companies said.